Is the real estate market still a good investment for a household?

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The real estate market is one of the most globally recognized sectors. In India, it is the 2nd largest employer after agriculture and is poised to grow at 30 per cent over the next few years. The Indian real estate market has become one of the most preferred destinations in the Asia Pacific as overseas funds accounted for more than 50 per cent of all investment activity in India in 2014, compared with just 26 per cent in 2013. This sector consists of four sub sectors – housing, retail, hospitality, and commercial. The growth of the real estate sector is accompanied by the growth of the corporate environment and the demand for office space as well as urban and semi-urban housing requirements. It is also expected that this sector will incur more non-resident Indian(NRI) investments in both the short term and the long term. Bengaluru is expected to be the most favored property investment destination for NRIs, followed by Ahmedabad, Pune, Chennai, Goa, Delhi and Dehradun.

However, with huge inventory lying unsold across the country, the road to recovery looks long and winding for the real estate sector. According to experts, it will take another five years to sell the entire unsold inventory, but lack of buyers; interest will make it more and more difficult for developers to complete existing projects. Even the festive season and the recent round of rate cuts by the Reserve Bank of India(RBI) have failed to bring cheers to the real estate market. Lack of a regulator and delayed reforms have also prompted people to stay away from real estate. Property prices have remained stagnated. Investor activity in the real estate sector, which showed signs of being less promising over the past three years, is finally on an uphill in 2016 thanks to regulatory reforms. This year is a good time for prospective home buyers to lock-in as prices have become stable, but delays in delivery and unaffordability are dampeners to the revival of consumer sentiment.

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With regards to new launches, developers have cut down on new projects. Moreover, end-users have not been buying properties feeling let down by the developers. Stretched deadlines for completion of projects has shooed buyers away from the market. However, to revive the consumer sentiment, developers will have to improve delivery of incomplete projects and reduce prices. They also need to clean up their balance sheets by de-leveraging to nurture more confidence among investors and allow more liquidity options. 2015 proved to be a stimulating year for the industry with government starting the process of initiating policies that will maintain the growth of the sector. Unsold units are a key indicator for the real estate sector. Rising levels of inventory signify the lack of demand in the market. The real estate market in India lacks regulation, transparency and systematic process. A regulator for the sector will help buyers and investors to rebuild their faith in builders and developers.

The Government of India along with the governments of the respective states has taken several initiatives to encourage the development in this sector. The Smart City Project, where there is a plan to build 100 smart cities, is a prime opportunity for the real estate companies. Responding to an increasingly knowledgeable consumer base and, keeping in mind the aspect of globalization, Indian real estate developers have started shifting gears and consequently accepting new challenges.

The most remarkable change has been the shift from family owned businesses to that of professionally managed ones. The continuous inflow of FDI into Indian real estate is promising increased transparency. Considering all the above factors I personally think that as an investor it may not be a good idea to invest in real estate in 2016. But, for end-users, however, it is certainly the right time.